Avianca Receives $250 Million USD Loan From United Airlines & Kingsland Holdings, Seeks To Raise Additional $125 Million Debt

On October 4, 2019, United Airlines, Inc. (NASDAQ: UAL) and Kingsland Holdings Limited delivered to Avianca Holdings S.A. (NYSE: AVH, BVC PFAVH) a commitment to provide Avianca at least a $250 million senior secured convertible loan, expected to close on or before October 15, 2019. Under the commitment, the lenders would together provide not less than $200 million of a convertible loan, and they and Avianca have agreed that one or more additional third-party lenders may also participate in the convertible loan in respect of the additional $50 million. In addition, the lenders and Avianca have agreed to terms and conditions under which Avianca expects to seek to raise an additional $125 million of incremental debt from Avianca’s preferred shareholders in the form of senior secured convertible bonds, currently contemplated to be structured as a subscription rights offering to the preferred holders proportionate to each preferred holder’s interest in Avianca.

Terms & Conditions:

$250 Million Senior Secured Convertible Loan (subject to mandatory conversion features)

• Use of Proceeds – General corporate purposes after repaying all obligations under Avianca’s existing $50 million loan from Kingsland Holdings
• Conversion Price – $4.6217 per ADS, representing a 35% premium to the 90-day volume-weighted average price, through October 3, 2019, of $3.4235
• Maturity – Four years from the funding of the Convertible Loan (currently anticipated to be November 2023).
• Interest – 3% per annum PIK to maturity date; with no upfront fees.
• Security – Secured by pledge of stock in Avianca’s major subsidiaries; provided, that Avianca may sell and retain net proceeds from certain non-strategic business operations.

Avianca may convert all of the outstanding principal amount of the convertible loan upon the satisfaction of the following conditions:

• Avianca’s ADS trading at or above $7.00 on a volume-weighted average price basis for 112 of 150 consecutive business days (if such conversion is to occur on or prior to the first anniversary of the funding of the Convertible Loan) or
• Avianca’s ADS trading at or above $7.00 on a volume-weighted average price basis for 90 of 120 consecutive business days (if such conversion is to occur after the first anniversary of the funding of the Convertible Loan);
• Avianca’s consolidated total cash averaging equal to or greater than $700 million over the immediately preceding six-month period;
• The non-existence of defaults or events of default under the Convertible Loan documentation; and
• The non-existence of material litigation.

Conditions Precedent to Funding: Including, but not limited to:

1. Obtaining necessary consents for granting collateral interests;
2. Successfully completing Avianca’s previously announced re-profiling plan, including obtaining all necessary waivers and consents, as an integral part of Avianca’s previously announced $2.6 billion liquidity program and profit turnaround (the “Avianca 2021 Plan”);
3. Reducing Avianca’s fleet and new aircraft orders (and major maintenance agreements) compatible with Avianca 2021 Plan;
4. Successfully completing Avianca’s previously announced exchange offer for its 8.375% Senior Notes due May 2020 for new 8.375% Senior Secured Notes due 2020 with participation therein of at least 85% of the outstanding aggregate principal amount of Avianca’s currently issued and outstanding 8.375% Senior Notes;
5. Adopting and implementing substantial changes in Avianca’s revenue and cost initiatives designed to meet the profit targets embedded in the Avianca 2021 Plan; and
6. Having a total cash balance of $550 million after giving effect to the first $250 million of Convertible Loan and the repayment of the Kingsland Loan, and taking into account any funds that will be released to Avianca upon closing of the Convertible Loan.

$125 Million Senior Secured Convertible Bonds (subject to mandatory conversion features):

• Form – The Incremental Debt is contemplated to be structured as tradeable mandatorily convertible bonds on terms and conditions set by Avianca in order to ensure all $125 million of funds will be received by Avianca; however, the term, collateralization and mandatory conversion features of the Incremental Debt, among other provisions, must be the same as the Convertible Loan.
• Allocation – The Incremental Debt is expected to be allocated: first, on a pro rata basis to Preferred Holders pursuant to their respective subscription rights, which are anticipated to be transferrable; and second, to the extent that all of the Incremental Debt has not been allocated pursuant to the foregoing allocation, the remaining portion shall be offered to any persons and in any manner determined by Avianca and its board of directors in accordance with applicable law and rules of the applicable exchange.
• Timing – Upon compliance with all applicable securities laws and completion of funding of the Convertible Loan.

Exchange Offer Collateral Condition

The Company is currently finalizing the documentation necessary for closing its previously announced offer to exchange any and all of its 8.375% Senior Notes due 2020 for newly issued 8.375% Senior Secured Notes due 2020, including the documents necessary to create and perfect the security interests in the Collateral, as defined in Avianca’s Exchange Offer Memorandum and Consent Solicitation Statement, dated August 14, 2019, as supplemented (the “Exchange Offer Memorandum”).

On the Settlement Date, as defined in the Exchange Offer Memorandum, Avianca will have all security agreements with respect to the granting of security interests in the Collateral, including applicable airplanes and residual interest in airplanes Collateral and intellectual property Collateral in final and agreed form; provided, that due to various local law requirements in the approximately 19 countries in which Avianca intends to file such applicable Collateral documentation, some signatures, formality requirements and filings of collateral instruments will be made as soon as possible after the Settlement Date, and perfection will not occur until such applicable filing is made and, in some jurisdictions, perfection may be deemed not to have occurred until the applicable filing is additionally registered or similarly acknowledged in such jurisdictions, which is subject to local government processes and procedures and in some cases could take several weeks or months after the Settlement Date.

The Company’s having all such documentation with respect to the Collateral in final and agreed form on the Settlement Date shall be deemed to satisfy the Collateral Condition (as defined in the Exchange Offer Memorandum), notwithstanding that the filing and perfection of the security interests will take place following the Settlement Date, as described above.